McGraw Company uses 9,500 units of Part X each year as a component in the...
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Accounting
McGraw Company uses 9,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $158,500, computed as follows:
| Direct materials | $ 28,500 |
|---|---|
| Direct labor | 48,000 |
| Variable manufacturing overhead | 19,000 |
| Fixed manufacturing overhead | 63,000 |
| Total cost | $ 158,500 |
An outside supplier has offered to provide Part X at a price of $19.80 per unit. If McGraw Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated. Assume that direct labor is a variable cost.
Required:
Prepare an analysis showing the annual financial advantage or disadvantage of accepting the outside supplier's offer.
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